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Tax policy in a model of search with training

  • Jan Boone

    ()

  • Ruud de Mooij

This paper develops a model of search on the labour market with training. The model reveals how the tax system can restore the social optimum if the Hosios condition is not satisfied in the private equilibrium. Furthermore, the effects are explored of a second-best reform from a specific tax per job to a marginal wage tax, when a given amount of public revenue has to be raised.� We find that (i) a marginal wage tax is less distortionary to raise revenue than is a specific tax per job, provided that training is not distorted initially; (ii) this conclusion may reverse in the presence of training distortions; (iii) marginal wage taxes are less distortionary in economies characterized by commitment in wage bargaining, such as the European labour market. Hence, tax reforms that reduce the tax burden per job and raise the marginal wage tax, such as an EITC or a negative income tax, are more attractive in Europe than in the US.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Research Memorandum with number 161.

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Date of creation: Feb 2000
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Handle: RePEc:cpb:resmem:161
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  1. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February.
  2. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May.
  3. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 221-264, October.
  4. Michael J. Boskin, 1975. "Notes on the Tax Treatment of Human Capital," NBER Working Papers 0116, National Bureau of Economic Research, Inc.
  5. repec:cup:cbooks:9780521590730 is not listed on IDEAS
  6. Bovenberg, A Lans & de Mooij, Ruud A & Graafland, Johan J, 1998. "Tax Reform and the Dutch Labour Market: An Applied General Equilibrium Approach," CEPR Discussion Papers 1983, C.E.P.R. Discussion Papers.
  7. Robert Haveman, 1995. "Reducing Poverty while Increasing Employment: A Primer on Alternative Strategies, and a Blueprint," OECD Jobs Study Working Papers 7, OECD Publishing.
  8. Broersma, Lourens & Van Ours, Jan C., 1999. "Job searchers, job matches and the elasticity of matching," Labour Economics, Elsevier, vol. 6(1), pages 77-93, March.
  9. Dupor, Bill, et al, 1996. "Some Effects of Taxes on Schooling and Training," American Economic Review, American Economic Association, vol. 86(2), pages 340-46, May.
  10. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  11. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
  12. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
  13. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. van Ours, J.C. & Broersma, L., 1999. "Job searchers, job matches and the elasticity of matching," Other publications TiSEM c199f354-b73c-49b6-84f6-e, School of Economics and Management.
  15. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  16. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  17. Mortensen, Dale T & Pissarides, Christopher, 2001. "Taxes, Subsidies and Equilibrium Labour Market Outcomes," CEPR Discussion Papers 2989, C.E.P.R. Discussion Papers.
  18. Bovenberg, A. Lans & van Ewijk, Casper, 1997. "Progressive taxes, equity, and human capital accumulation in an endogenous growth model with overlapping generations," Journal of Public Economics, Elsevier, vol. 64(2), pages 153-179, May.
  19. repec:ner:tilbur:urn:nbn:nl:ui:12-74442 is not listed on IDEAS
  20. Bovenberg, A.L. & van Ewijk, C., 1997. "Progressive taxes, equity and human capital accumulation in an endogenous growth model with overlapping generations," Other publications TiSEM 6d8dd905-8f4d-4b98-8202-1, School of Economics and Management.
  21. James Heckman & Lance Lockner & Christopher Taber, 1999. "Human capital formation and general equilibrium treatment effects: a study of tax and tuition policy," Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 25-40, March.
  22. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  23. repec:ner:tilbur:urn:nbn:nl:ui:12-80319 is not listed on IDEAS
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